Vietnam: conquering in silence but no place for smart mobility

As the global economy slowed down in 2019 and braces for a worst, corona-heavy 2020, a few countries in Asia have been consistently growing without making too much noise about it. Vietnam is one of these countries, ideally located in the middle of South-East Asia, with a large coastline into the South-China Sea and a shorter one into the Gulf of Thailand. Vietnam has land borders with Laos and Cambodia, but most importantly, it’s the only South-East Asian country with a useful (road and train) connection to China.

Thumbs up from WorldBank

Between 2002 and 2018, Vietnamese poverty rates declined from over 70% to below 6% whilst its GDP increased by 250% during the same period. Middle class, now 13% of the roughly 100 million population, will rise to 26% by 2026. Access to electricity and clean water is now close to 100%, universal healthcare covers 87% of the population and education performs far above global averages.

Thumbs down from WorldBank

Vietnam’s growth has unfortunately not been very “green”, and Government has only just started programs to reduce water and air pollution. The unregulated exploitation of the country’s natural resources (timber, fish, sand) is increasing and not sustainable; WorldBank fears for the impact of current state on long-term growth.

In addition, it’s not the easiest country to do business in: the regulatory process is abrupt and confusing, as new confusing and contradictory legislations or directives can pop up anytime without prior announcement. Add to this the country’s widespread bribe culture – often just a couple of dollars, but much more if the favor requires the intervention of more senior officials – and its endless need for documents that need to be stamped plus notarized, and business admin becomes a nightmare.

Car market: CBUs and CKDs

Vietnam’s car industry is dominated by import. The streets of Ho Chi Minh and Hanoi are dominated by Toyota (Vios and Hilux from Thailand and Innova/Avanza/Fortuner/Rush from Indonesia). These vehicles are so-called CBUs or “Completely Built-Up”: vehicles that arrive in Vietnam ready to drive. CBUs are typically submitted to high taxation, as they don’t contribute to the Vietnamese economy and are considered a threat to the Vietnamese automotive industry. Opposite the CBUs are the CKDs or “Completely Knocked-Down” vehicles; these require assembly or are produced from scratch on Vietnamese soil. Examples of CKDs are local brand VinFast (high-end, modern looking ICEs and EVs) or Truờng Hải, the local assembler for KIA.

Car Sales

322.322 units were sold on the VN market in 2019, up 11.7% from 2018. Toyota holds a market share of 24.6%, the Truờng Hải group (including its local Thaco brands + KIA) owns 17.2% of the market, followed by Honda, Thaco Mazda (CKD) and Ford, each at 10%. Peugeot and Chevrolet are the first Western brands, both at 1% market share.

Car sales are slowing down due to coronavirus: a 27% drop YoY has been reported by the Vietnamese Automobile Manufacturers Association. Nevertheless, compared to Europe and much alike China, virus containment measures were implemented extremely fast and very efficiently, which might result in a faster back-to-normal.

ASEAN

Another factor contributing to a positive car sales forecast is the ASEAN Free Trade Agreement. This FTA governs import/export between South-East Asian countries and reduces import taxes, even from CBUs, to 0%, down from 50% and above a mere few years ago. As a result, cars become much more affordable for the growing middle class, whose alternatives are either ride-hailing or motorcycles.

A bright future for the automobile?

Public transport in Vietnam is extremely poor. Bus service is of very bad quality and unreliable, train lines are rare and the metros that are being built in Hanoi and Ho Chi Minh take ages to be finalized, due to lack of funding and various corruption cases interrupting their construction.

The car seems to be the only way out for people wanting to upgrade from a 2-wheeler. Unfortunately, this will generate additional problems for the hyper-congested two key cities in the country. As the Government seems to have no other strategy than to build new roads over existing roads, Bangkok style, and is not anticipating the increasing need for mobility that comes with GDP growth and urbanisation, Vietnam might become the next number one on the congestion index, in addition to keeping its high score on the pollution list.

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